European Carmakers Warn of Global Market Setbacks Amid Russia and Latin America Slowdown
Peugeot, Fiat, Ford and GM have flagged falling demand and political risk in Russia and Latin America, even as Europe’s recovery shows signs of stabilising.
Europe’s largest carmakers have issued a series of warnings about weakening prospects in key global markets, highlighting political instability in Russia and economic slowdown in Latin America as major risks to growth in 2014.
PSA Peugeot Citroën said it now expects the Russian car market to contract by 10% this year, falling from 2.8 million sales in 2013, as the Ukraine crisis and Western sanctions continue to hit consumer confidence and investment. Renault shares this outlook, while General Motors and Ford have both taken concrete steps to cut exposure. GM has reduced Russian production by around 20% on falling demand, and Ford booked a $329 million impairment charge related to its Russian joint venture.
Russia and Latin America drag on results
Fiat’s second-quarter results underline the scale of the challenge. The group saw a steep drop in profit, with results particularly affected by the slowdown in Latin America, where it is the market leader in Brazil. Sales have fallen since the end of government incentives, and the company also cited unfavourable exchange rates. Despite this, Fiat’s revenue rose, supported by growth in North America and China, and a strong performance from luxury brands including Ferrari and Maserati, which posted a 59% sales gain in China.
Chrysler, now part of Fiat, reported an 18% profit drop in North America, blaming higher advertising costs, increased sales discounts and currency headwinds. The picture is similar for Peugeot, which managed to lift European sales by 12% thanks to new models and capacity cuts, but still posted a €114 million net loss for the first half, an improvement on last year’s €471 million loss, but still in the red.
European market stabilises but risks persist
Despite the global setbacks, European car sales have shown some stability, with the market registering a fourth consecutive quarter of growth up to the end of June 2014. Peugeot’s recovery in its home region has been driven by cost-cutting and the closure of a major plant near Paris, but the company remains cautious about the outlook given the external shocks in Russia and Latin America.
The mixed results highlight the uneven nature of the global recovery. While some manufacturers are managing to offset regional declines with gains in China or the US, persistent weakness in Russia and Latin America is eroding margins and complicating forecasts for the rest of the year.
